Subway wants to get its stores remodeled, but many franchisees can’t afford it. | Photo: Shutterstock.
This is from the weekly restaurant finance newsletter The Bottom Line. To get this in your inbox every Monday morning, click here.
We wrote last week about Subway, whose franchisees are again pushing back against the company’s remodel requirements. Operators don’t think the company has provided enough evidence that the remodels generate a return. Subway argues that remodels are necessary to keep stores fresh, which customers prefer.
Both are right. Remodels are important for restaurant chains to remain relevant over the long term. All operators should plan on periodic remodels of their locations. It’s just smart business.
But remodels should also generate a return to the operators who have to fund them. A good remodel should boost sales at the location. Any franchisee will want to know whether remodels will improve their store’s performance.
This is especially true for a brand like Subway, whose sales have been weak for well over a decade, resulting in the closure of nearly 30% of the chain’s locations. Remodels could theoretically boost sales. But struggling franchisees will often forgo remodels, particularly if they don’t think it will help. And remodel requirements often make it difficult for them to sell those stores.
Brands can force the issue, by terminating operators. But that carries risks of its own. The result can be a standstill that ultimately does more damage.
The easy solution for this is for brands to make sure their remodels generate a return for franchisees. Or to help provide a financial incentive to encourage operators to get those projects done. Because otherwise franchised brands get stuck between a rock and a hard place.
This week’s financial news
Starbucks is closing locations and laying off workers. And its traffic remains stubbornly problematic nearly two years into its sales slump. The closures are not a surprise. The persistence of the sales slump certainly is.
Iron Hill Brewery shut down all of its locations. And the California chain Opa filed for Chapter 7. Just another week in the restaurant business.
Oh hey Chick-fil-A is creating a beverage concept. I was thinking the other day that we don’t have enough secondary, beverage-centric concepts created by major fast-food chains.
The track record of chains going public via SPAC is … not great.
Number of the week
Cracker Barrel was outperforming both full-service same-store sales averages and family-dining results in the year before its logo fiasco. Its crime was certainly not worth the punishment it’s received.
Quote of the week
“Subway has imposed a non-negotiable remodel timeline that treats franchisees not as business partners, but as corporate ATMs. These aren’t cosmetic touch-ups we’re talking about [but] six-figure investments that could devastate family businesses, drain retirement savings, and force store closures across communities nationwide.” -The North American Association of Subway Franchisees, in an announcement pushing back against the company’s remodel requirement.
On the blog
I wrote about Starbucks, Pinstripes and Cracker Barrel. Check out all my blog posts on The Bottom Line.
On the podcast
On A Deeper Dive I spoke with Cameron Watt about delivery. On The Week in Restaurants, Joe Guszkowski and Lisa Jennings talk Starbucks, Chick-fil-A and Portillo’s.
For questions, comments or story ideas, send me an email at jonathan.maze@informa.com. And follow me on Twitter at @jonathanmaze. And also LinkedIn. And TikTok.
